What Is a Significant Problem with Using Conventional Accounting Measures

question 17

Multiple Choice

What is a significant problem with using conventional accounting measures of profit, or profit-based ratios?

• A) All sources of revenue to the business are not considered in traditional methods.
• B) Electronic data processing methods are demonstrating that these measures are obsolete.
• C) Accounting measures include the opportunity cost of shareholder equity, understating net income.
• D) There is often a mixture of historic values with current market values in the calculations.
• E) Risk, a qualitative intangible, is a factor in the calculation of income.

---

Definitions:

Diminishing

A principle often observed in economics where additional units of a variable factor increase total output at a decreasing rate.

Positive Constants

Fixed values greater than zero that appear consistently within a mathematical equation or expression.

Isoquant Slope

The slope of an isoquant curve represents the rate at which one input can be substituted for another while maintaining the same level of output in production theory.

Input

Resources such as labor, materials, and capital that are used in the production process to create goods or services.